Palaniappam Robin Hoodam Chidambaram – Brilliant Budgeting


Firstly, I come to praise PC, not to bury him

So the markets hated the Budget yesterday. Down 300 points in response to the budgetary speech. Financial commentators would have you believe the budget didn’t deliver. Or that it didn’t deliver to the high expectations that investors had of PC -by now unquestionably a key figure in the history of the Indian economy. But, ignoring the view of the manic-depressive equity markets, is the budget really as terrible as it is made out to be ? I strongly think it is not. In fact, I will argue here that it is a pretty good budget. Given the circumstances. And for Mr. Chidambaram (given his capital-markets friendly history) to buckle down and accept the circumstances and do what was needed (regardless of what markets feel) is indeed something to appreciate.

 

So Mr. Chidambaram took a bit from the rich and gave to the poor

India is a country of great economic unequality. Several of the richest men in the world live here (as is very well known and publicised regularly by Forbes and all Indian Media). It is equally true that India’s per capita income is 142nd in the world (the average Indian is poorer than the average citizen of 141 other countries to put that statistic into everyday English). This is either a problem or an opportunity depending on your point of view. What Mr. Chidambaram did yesterday was to try and use this opportunity before it becomes a problem. He raised the taxes on the rich in India (who are rich by any global standard) in order to give to the poor in India (who are poor by any global standards). The 99 crore poor of India is not blind or deaf. He can see the air-conditioned malls and the lamborghini’s and the rolex gold watches. He also sees his own children struggle for food and medicine and education and water. It is better for the government to try and redress this balance. Before the 99 crore takes things into their own hands and tries to redress it themself.

With greater taxes comes greater responsibility
The finance minister also clearly pointed (very sarcastically indeed) to the low levels of compliance in India – both on the personal income taxes and the service tax fronts. Clearly, there is a message in there. The deficit will be resolved – some of it through the increased token taxation. But most of it will be resolved through the emphasis on greater compliance. If the memo has not reached India’s uber-rich, it soon will. Stop complaining about taxes that you don’t pay anyways. Start paying.

For the salaried class and the upper middle class

There is really nothing in the budget that changes your life adversely. Yes, restaurant bills will become more expensive. But they already are ridiculous anyways. Yet we continue to eat out and become more and more obese (speaking personally and on behalf of the collective urban Indian). Maybe, just maybe, this will be the trigger that works. Cigarettes will become more expensive. Again, that’s not a bad thing. You probably won’t be able to buy the Ducati you were only half-dreaming of. Again, probably not a bad thing. Your taxes didn’t go down, but they didn’t go up either. Your luxury house will cost 1% more. That’s less than a 0.1% increase in your EMI. However, a bunch of measures like this will help keep the overall economy in balance (and we’ve seen how an economy in trouble can hit EMIs by 3-4% easily over the last few years) There’s a bit of figurative short-term belt tightening that we could all use collectively (and literally).

It’s not a populist budget, it’s a practical, sensible and unpopular budget – but it’s what the country needs. Let’s not worry too much about what the stock market says. I think it’s a good budget. The more I see it, the more I like it.

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3 thoughts on “Palaniappam Robin Hoodam Chidambaram – Brilliant Budgeting

  1. The Budget in itself is a highly hyped phenomenon in India. No country in the world celebrates/admonishes it like the way we do. Also, there is a difference in imagination, allocation and execution. So 3000km Road contracts will be awarded in first 6 months is anounced, people believe the roads are already ready.

    The only part of the budget which the common man finds significant is the part related to taxes. I am surprised you even mention the 1crore plus tax 42,800 assessees paying 10% more surcharge. How much will that yield? Its an electoral headline at best like many other announcements yesterday (which aren’t enough to bring the UPA to power IMHO)

    I don’t believe the budget can change anything as far as the economy is concerned. At worst, it can create havoc if there is a series of ineffective social schemes or stupid announcements (were made last year). And thankfully, good sense has prevailed and no mad announcements have been made.

    The markets were expecting some big bang signs that would revive growth (probably foolish). And I agree with those commentators who say that there is nothing in it which can give a filip to the investment cycle.

    The budget isn’t good or bad. It is a non-issue. Its a non-event. It doesn’t deserve a blog post from you or a response from me or the many FB/Twitter statuses 😛

  2. Ankit, the budget is not a non-issue. In a country where the government is still the largest employer as well as one of the most significant source of demand on account of it’s socialist leanings, the budget is a very significant document as well as a very significant driver of the direction of the country.
    No one imagines that announced roads are the same as ready roads. Neither do the 42,000 1 crore+ taxpayers make an iota of difference in the big scheme of things. But an ocean can only be made of a lot of small drops. The limited point I was making was that PC isn’t a moron and if he wanted to go populist he could have easily gone populist – announce a tax hike across the board, give more free power and free water and more dole-outs. Contrary to general perception currently, I was merely saying that this isn’t really a populist budget DESPITE all the pressure on him. And that needs to be appreciated.

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